Banks are famous for operating in “silos.” Loans in one department, deposits in another and mortgages somewhere else. In some banks, every department is left to fend for themselves and turf wars erupt as confusion reigns about who really “owns” the relationship. In most cases, banks often place the burden of selling different products and services on the relationship manager as they pick and choose from a laundry list of products and services in which to position to the client. In this article, we analyze how organizational structure can look differently so that banks can enjoy greater customer profitability.
The Basics of Breaking Down Silos
We are not sure when the first multi-product corporation came about but we are pretty sure whatever it was there were silos. It is natural for organizations to want to divide up along product and service lines with each department revolving around a specialty.
Over the past 100 years, this has been a recognized problem in banking and many a management team have tried to solve it. Usually, it starts out by clarifying the vision, working on culture and then providing the right incentives to make sure multiple products get pitched. A bank tries to hold more team building events and social gatherings in an effort to mix different departments.
Of course, we often see the outcome as these events end up looking like high school prom with the lending team in one corner and compliance in another.
Often times, vision, culture, and incentive are enough to achieve the level of desired integration. However, most times it is not enough.
The Intermediate Way of Breaking Down Silos
If your bank has done the basics, then it may not be measuring the outcomes enough. Creating a dashboard and focusing on cross-sell and better collaboration helps. While compensation may or may not change outcomes, peer and performance pressure often does the trick.
It is usually at this point where more meetings on the topic take place.
Inevitably, management realizes that teams are not talking to each other enough and so more meetings are held to work on how to cross-sell. This helps, but often makes the organization less responsive. Having cross-functional meetings for every client isn’t scalable and so often only occurs for the bank’s top clients, however defined.
Some Advance Ways of Breaking Down Silos
If you have done all of the above, and silos are still an issue, then it is time to take a more systemic approach. The organization needs to change, and here are some proven methods that we have learned from successful banks that have solved this problem:
Pricing: One of the best ways to break down silos is to have a new pricing structure. Make sure that every term sheet or proposal that goes out contains an incentive structure for the customer to use more than one bank product. All loan term sheets, for example, should have a reduction in pricing if the client uses the bank’s treasury management services. For that matter, term sheets should be included in proposals with some information on a variety of different services that the bank provides such as trust, wealth management, international or merchant services.
Training: Banks often train their employees by departments. Take a look at your training programs and find out what percentage of the content promotes cross-functional collaboration. For banks that don’t have a silo problem, cross-functional training often amounts to 15% or more. For some banks, this is a rather informal process. One bank we know buys lunch once per month for you if you listen to an overview from another department. Employees get to learn what other departments are doing, how they are doing compared to budget, what is ahead and the latest trends. Each session is held to 30 minutes and if nothing else it provides every employee with a contact to go to if they have questions about a certain product.
Communication: A more drastic approach is to rethink how your bank communicates. Often, a primary method is through email. Email is one of the greatest promoters of silos there is. Emails lack the transparency needed to foster silo breaking. Tools like Slack, Gitter, Asana and other help bring more transparency to each department. The organization can see what each department is working on and what new clients the business development team are trying to land. In combination with the above, open communication fosters teamwork.
Organizational Structure: The way a bank is organized has a lot to do with the creation of silos. It is no surprise that many banks were started by former lenders and the bank has become lender-centric. This is ironic as a loan is often the least profitable product in the organization on a risk-adjusted basis. By building “client action teams,” you put a small group of people from different departments in charge of the relationship. Instead of a single point of contact, the customer has multiple points of contact each not only representing their department but by others as well. Compensation is based on team, not individual performance. The result, more focus on the client and better representation of different areas.
Marketing: It is no surprise that a majority of bank marketing is targeted at products and not solutions since marketing is often requested from a specific silo. While there is nothing wrong with marketing a single product, oftentimes marketing a solution is more effective. Marketing a set of high net worth retail checking accounts in combination with a business checking account not only provides a more comprehensive solution for the customer but also has a higher rate of conversion and is more profitable. Marketing a bundle of products also tends to force various silos to work together.
Putting This Into Action
No matter the size of your bank, rethinking your organization to better promote groups of products can pay dramatic returns. Higher cross-sell ratio often means better customer retention, higher profit per customer, higher cumulative lifetime value and a better credit profile. By pairing a term loan with a loan sweep, line of credit and treasury management account, credit risk can significantly decrease as the bank has the ability to capture more account data, monitor usage and have three to nine-month head start on potential cash flow problems.
If your bank has done the basics and you still are rife with silos, it is time to start putting a different process in place that assures better cross-functional performance. By coming up with a better pricing strategy, enhanced training, transparent communication tools and combination marketing, your bank can win the war on silos.
Submitted by Chris Nichols on June 04, 2018